The banking industry recorded a 13.6 per cent, month-on-month, MoM, increase in bad loans to N2.76 trillion in August, 2021, a development attributed to rising loan defaults in the construction sector.
The construction industry is said to be pressured by the increase in prices of building materials.
The Central Bank of Nigeria, CBN, disclosed this in its August Economic Report, saying that the banking industry Non-Performing Loans, NPL, ratio rose to six per cent in August, one percentage point above the five percent regulatory threshold.
According to CBN data, total credit to the domestic economy rose by 2.2 per cent to N46 trillion in August from N44.99 trillion in July. This implies that the Non-Performing Loans (bad loans) rose to N2.76 trillion in August from N2.43 trillion in July, representing N330 billion or 13.6 per cent increase.
The huge jump in NPLs, the CBN stated, was caused by increased loan defaults in the construction sector which accounted for 4.7 per cent or N905 billion of ‘credit to other sectors’ in August, up from 4.6 per cent of N879 billion in July.
The CBN said: “The asset quality, measured by the ratio of Non-Performing Loans (NPLs) to the industry total outstanding loans, deteriorated to 6.0 per cent at end-August from 5.4 per cent at end-July.
“The ratio was above the 5.0 per cent regulatory threshold by 1.0 percentage points.
“The increase in NPLs was due, mainly, to the increase in construction sector non-performing loans, owing to the rise in the prices of building materials, making it difficult for the contractors to meet their debt obligations.”
However, the CBN report also said that the banking industry recorded a slight drop in capital adequacy ratio, due to increase in banks’ lending activities in August.
It stated: “The banking system remains safe and sound, as the financial soundness indicators reveal general stability, despite marginal declines in August. The Capital Adequacy Ratio (CAR) fell by 0.01 percentage point to 15.21 per cent at end-August, relative to the 15.22 per cent at end-July. The decline was due to an increase in credit, resulting in the rise of total risk-weighted assets.
“The ratio, however, exceeded the regulatory benchmark of 10.0 per cent and 15.0 per cent for banks with national and international authorisations, respectively. Liquidity ratio at 63.4 per cent in August rose by 0.4 percentage points, compared with the level in July and was also above the 30.0 per cent benchmark. The development was due to an increase in the stock of liquid assets held by banks.”